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ABN AMRO

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ABN AMRO Holding N.V.
Company typeTemporary public ownership
IndustryFinancial services
Founded1991
HeadquartersAmsterdam, Netherlands
Key people
Mark Fisher (CEO)
ProductsAsset management
Commercial banking
Investment banking
Private banking
Retail banking
Increase €17 billion (2007)[1]
Increase €10 billion (2007)[2]
Total assetsDecrease €912 billion (June 2008)[3]
OwnerKingdom of the Netherlands - dutch government
Number of employees
102,556 (end 2007)[2]
SubsidiariesABN AMRO Bank N.V.
Websitewww.abnamro.com

ABN AMRO is a Dutch bank, currently owned by RFS Holdings B.V., a consortium of Royal Bank of Scotland Group, Fortis Bank Nederland, and Banco Santander. The bank is the result of the 1990-91 merger of Amsterdam-Rotterdam (AMRO) Bank and ABN, whose history dated back to the founding of the Nederlandsche Handel-Maatschappij in 1824.

Between 1991 and 2007, ABN AMRO was one of the largest banks in Europe and had operations in about 63 countries around the world. In the biggest ever banking takeover the bank was acquired in 2007 by a banking consortium [4] which will divide ABN AMRO's operations between them. This process will take till the end of 2009. The American retail assets were sold by ABN AMRO to Bank of America in the months leading up to the acquisition. Fortis announced in September 2008 that it intended to sell its stake in the acquiring company, RFS Holdings, which included all activities that had not been transferred yet to Fortis (i.e. everything except Asset Management).[5] Continuing problems in the Fortis operations in the 2008 financial crisis led to the Dutch Government buying all Dutch Fortis operations, including its stake in RFS Holdings, taking over the Fortis-owned parts of ABN-AMRO.

2007 acquisition of ABN AMRO

ABN AMRO had come to a crossroads in the beginning of 2007. The bank had still not come close to its own target of having an ROE that would put it among the top 5 of its peer group, a target that the CEO, Rijkman Groenink had set upon his appointment in 2000. From 2000 until 2006, ABN AMRO's stock price stagnated.

Financial results in 2006 added to concerns about the bank's future. Operating expenses increased at a greater rate than operating revenue, and the efficiency ratio deteriorated further to 69.9%. Non-performing loans increased considerably year on year by 192%. Net profits were only boosted by sustained asset sales.

There had been some calls, over the prior couple of years, for ABN AMRO to break up, to merge, or to be acquired. On February 21, 2007, the call came from the TCI hedge fund which asked the Chairman of the Supervisory Board to actively investigate a merger, acquisition or breakup of ABN AMRO, stating that the current stock price didn't reflect the true value of the underlying assets. TCI asked the chairman to put their request on the agenda of the annual shareholders' meeting of April 2007.

Events accelerated when on March 20 the British bank, Barclays and ABN AMRO both confirmed they were in exclusive talks about a possible merger. On March 28, ABN AMRO published the agenda for the shareholders' meeting of 2007. It included all items requested by TCI, but with the recommendation not to follow the request for a breakup of the company.[6]

However, on April 13, another British bank, the Royal Bank of Scotland (RBS) contacted ABN AMRO to propose a deal in which a consortium of banks, including RBS, Belgium's Fortis, and Spain's Banco Santander Central Hispano (now Banco Santander) would jointly bid for ABN AMRO and thereafter break up the different divisions of the company between them. According to the proposed deal, RBS would take over ABN's Chicago operations, LaSalle, and ABN's wholesale operations; while Banco Santander would take the Brazilian operations and Fortis, the Dutch operations.

On April 23 ABN AMRO and Barclays announced the proposed acquisition of ABN AMRO by Barclays. The deal was valued at €67 billion. Part of the deal was the sale of LaSalle Bank to Bank of America for €21 billion.[7]

Two days later the RBS-led consortium brought out their indicative offer, worth €72 billion, if ABN AMRO would abandon its sale of LaSalle Bank to Bank of America. During the shareholders' meeting the next day, a majority of about 68% of the shareholders voted in favour of the breakup as requested by TCI.[8]

The sale of LaSalle was seen as obstructive by many: as a way of blocking the RBS bid, which hinged on further access to the US markets, in order to expand on the success of the group's existing American brand, Citizens Bank. On May 3, 2007, the Dutch Investors' Association (Vereniging van Effectenbezitters), with the support of shareholders representing up to 20 percent of ABN's shares, took its case to the Dutch commercial court in Amsterdam, asking for an injunction against the LaSalle sale. The court ruled that the sale of LaSalle could not be viewed apart from the current merger talks of Barclays with ABN AMRO, and that the ABN AMRO shareholders should be able to approve other possible merger/acquisition candidates in a general shareholder meeting. However in July 2007, the Dutch Supreme Court ruled that Bank of America's acquisition of LaSalle Bank Corporation could proceed.[1] Bank of America absorbed LaSalle effective October 1, 2007.[2]

On July 23 Barclays raised its offer for ABN AMRO to €67.5bn, after securing investments from the governments of China and Singapore, but it was still short of the RBS consortium's offer. Barclay's revised bid was worth €35.73 a share — 4.3% more than its previous offer. The offer, which included 37% cash, remained below the €38.40-a-share offer made the week before by the RFS consortium. Their revised offer didn't include an offer for La Salle bank, since ABN AMRO could proceed with the sale of that subsidiary to Bank of America. RBS would now settle for ABN's investment-banking division and its Asian Network.

On July 30 ABN AMRO withdrew its support for Barclays’ offer which was lower than the offer from the group led by RBS. While the Barclays offer matched ABN AMRO’s “strategic vision,” the board couldn’t recommend it from “a financial point of view.” The US$98.3bn bid from RBS, Fortis and Banco Santander was 9.8% higher than Barclays’ offer.

Barclays Bank withdrew its bid for ABN AMRO on 5 October, clearing the way for the RBS-led consortium's bid to go through, along with its planned dismemberment of ABN AMRO. Fortis would get ABN AMRO's Dutch and Belgian operations, Banco Santander would get Banco Real in Brazil, and Banca Antonveneta in Italy and RBS would get ABN AMRO's wholesale division and all other operations, including those in Asia.

On October 9, the RFS consortium led by Royal Bank of Scotland, bidding for control of ABN AMRO, formally declared victory after shareholders, representing 86 percent of the Dutch bank’s shares, accepted the RFS group’s €70bn offer. This level of acceptance cleared the way for the consortium to take formal control. The group declared its offer unconditional on October 10, when Fortis completed its €13bn rights issue. Thus the financing required for the group’s €38-a-share offer, which included €35.60 in cash, was realised. Rijkman Groenink, Chairman of the Managing Board of ABN AMRO, who heavily backed the Barclays offer, decided that he would step down.[9]

Impact of the 2008 Financial crisis on the acquisition

After previous denials following press coverage[13], on the 22 April 2008 RBS announced a rights issue which aimed to raise £12billion in new capital to offset a writedown of £5.9billion resulting from the bad investments and to shore up its' reserves following the purchase of ABN-Amro. This is the largest rights issue in British corporate history[14]. The bank also plans to divest some of its' subsidiaries to raise further funds, notably its insurance divisions Direct Line and Churchill[15].

Despite this fundraising and amid the worsening of the 2008 Global Financial Crisis, on the 13th October 2008, British Prime Minister Gordon Brown announced a UK Government bailout of the financial system.

The Treasury would infuse £37 billion ($64 billion, €47 billion) of new capital into Royal Bank of Scotland Group Plc, Lloyds TSB and HBOS Plc, to avert financial sector collapse. He stressed, however, that it was not "standard public ownership" and that the banks would return to private investors "at the right time."[16][17] Alistair Darling stated UK taxpayers would benefit from the government's rescue plan, as it will have some control over RBS in exchange for £5 billion in preference shares and underwriting the issuance of a further £15 billion in ordinary shares. If shareholder take-up of the share issue was 0% then total government ownership in RBS would be 58% and if shareholder take-up was 100% then total government ownership in RBS would be 0%.[18]

As a consequence of this rescue the chief executive of the group Sir Fred Goodwin offered his resignation which was duly accepted.

On July 11, 2008, the CEO of Fortis, Jean Votron, stepped down after the ABN AMRO deal had depleted Fortis' capital.[10][11] The total worth of Fortis, as reflected by its stock value, was at that time a third of what it had been before the acquisition, and just under the value it had paid merely for the Benelux activities of ABN AMRO.[12]

Fortis announced in September 2008 that it intends to sell its stake in RFS Holdings, which includes all activities that have not been transferred yet to Fortis (i.e. everything except Asset Management).[13] Continuing problems in the Fortis operations in the 2008 financial crisis led to the Dutch state obtaining full control of all Dutch Fortis operations, including Fortis owned parts of ABN-AMRO.

Ownership of the Dutch government

Continuing problems in the Fortis operations in the 2008 financial crisis led to the Dutch state obtaining full control of all Dutch Fortis operations (for €16.8bn). This includes Fortis owned parts of ABN-AMRO. Dutch government and the De Nederlandsche Bank president have announced merger of Dutch Fortis and ABN AMRO parts will be achieved while the bank is government owned.[14]

Financial Data
Years 2002 2003 2004 2005 2006
Sales net of interest €18.280mn €18.793mn €19.793mn €23.215mn €27.641mn
Ebitda €4.719mn €5.848mn €6.104mn €6.705mn €6.360mn
Net Result Share of the group €2.267mn €3.161mn €4.109mn €4.443mn €4.780mn
Staff 105,000 105,439 105,918 98,080 135,378
Source: OpesC'

Offices

See also

References

  1. ^ "2007 Full year results".
  2. ^ a b "2007 Annual Report" (pdf). p. 7.
  3. ^ "2008 Half year results" (pdf).
  4. ^ "RBS-led group says gets 86 pct of ABN shares". Reuters. 2007-10-08.
  5. ^ Questions and Answers on the Fortis site
  6. ^ BBC NEWS | Business | Barclays in exclusive ABN talks
  7. ^ BBC NEWS | Business | Barclays agrees £45bn Dutch deal
  8. ^ BBC NEWS | Business | RBS woos ABN with £49bn bid plan
  9. ^ BBC NEWS | Business | Barclays abandons ABN AMRO offer
  10. ^ Fortis Suffers ABN Pain - Forbes
  11. ^ Mixed fortunes for the buyers of ABN AMRO - The Economist
  12. ^ Fortis chief executive out; chairman now faces shareholder anger - International Herald Tribune
  13. ^ Questions and Answers on the Fortis site
  14. ^ The Dutch state now owns the Dutch part of ABN AMRO and Fortis. It is likely that this new bank continues to operate with as 'ABN AMRO' because the assets of ABN AMRO are much larger than the assets of Fortis. Announcement of the Dutch Ministry of Finance
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